Natural Gas Price Fundamental Daily Forecast – Specs Driving Prices Higher as Hurricane Uncertainty Intensifies

Natural gas futures continue to rise early Tuesday on weather concerns as Hurricane Michael barrels toward the northeastern U.S. Gulf Coast. According to the National Hurricane Center, Michael is expected to be near or at hurricane strength when it makes landfall on Tuesday night or Wednesday.

At 0851 GMT, November Natural Gas is trading $3.294, up $0.027 or +0.83%.

Currently, the path of potential destruction is fairly wide because the hurricane models haven’t honed in on its true path yet. The NHC’s forecast projections put the Florida Panhandle, parts of Alabama, Georgia, the Carolinas and Virginia in the storm’s path. Additionally, heavy rains from Michael could produce life-threatening flash floods from the Florida Panhandle and Big Bend region into portions of Carolinas through Thursday.

Prices are rising because as a precaution, energy companies are shutting down production. This is helping to drive spot prices higher.

Supply/Demand

In addition to the speculative buying fueled by the Hurricane, production lags in recent days and historically low national gas stocks also are likely driving up prices.

S&P Global Platts Analytics is reporting, “U.S. dry gas production is set to decline by 300 MMcf to 82.9 Monday. Output is likely to stay relatively flat over the next seven days.”

Platts also said that “Demand could decline over the next seven days, likely from storm-driven temperature dips and declines in utility gas burns. Total U.S. demand dropped since the start of the weekend because of heating demand in the Northeast and Upper Midwest falling 3.3 Bcf since Friday to 75.9 Bcf Monday.”

Additionally, heating demand is expected to rise due to the arrival of cooler temperatures. The National Weather Service is calling for a likelihood of below-average temperatures across much of the U.S. over the next six to 10 days.

In response to this, Platts Analytics estimates showed that over the next seven days, demand is likely to climb to average 77.5 Bcf/d.

Forecast

Prior to the Hurricane news, the market was expected to be underpinned by a drop in production and increased heating demand due to the expected arrival of cooler temperatures. The Hurricane is bringing in the speculative buyers.

Once the hurricane passes and damage is assessed, demand may fall, encouraging the specs to book profits and square positions.

So basically, we have to be bullish until we determine the location of the Hurricane’s landfall and can assess the damage to production facilities if any. If the Hurricane misses key production areas then look for prices to retreat because demand should decline due to power outages.